Correlation Between Chipotle Mexican and JOHNSON

Can any of the company-specific risk be diversified away by investing in both Chipotle Mexican and JOHNSON at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chipotle Mexican and JOHNSON into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chipotle Mexican Grill and JOHNSON JOHNSON 495, you can compare the effects of market volatilities on Chipotle Mexican and JOHNSON and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chipotle Mexican with a short position of JOHNSON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chipotle Mexican and JOHNSON.

Diversification Opportunities for Chipotle Mexican and JOHNSON

-0.53

Correlation Coefficient

Chipotle Mexican  JOHNSON

Excellent diversification

The 3 months correlation between Chipotle and JOHNSON is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Chipotle Mexican Grill and JOHNSON JOHNSON 495 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JOHNSON JOHNSON 495 and Chipotle Mexican is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chipotle Mexican Grill are associated (or correlated) with JOHNSON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JOHNSON JOHNSON 495 has no effect on the direction of Chipotle Mexican i.e., Chipotle Mexican and JOHNSON go up and down completely randomly.

Pair Corralation between Chipotle Mexican and JOHNSON

Considering the 90-day investment horizon Chipotle Mexican Grill is expected to generate 2.88 times more return on investment than JOHNSON. However, Chipotle Mexican is 2.88 times more volatile than JOHNSON JOHNSON 495. It trades about 0.13 of its potential returns per unit of risk. JOHNSON JOHNSON 495 is currently generating about -0.13 per unit of risk. If you would invest  5,635  in Chipotle Mexican Grill on September 12, 2024 and sell it today you would earn a total of  923.00  from holding Chipotle Mexican Grill or generate 16.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Chipotle Mexican Grill  vs.  JOHNSON JOHNSON 495

Chipotle Mexican Grill

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chipotle Mexican Grill are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Chipotle Mexican reported solid returns over the last few months and may actually be approaching a breakup point.

JOHNSON JOHNSON 495

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JOHNSON JOHNSON 495 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, JOHNSON is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chipotle Mexican and JOHNSON

The main advantage of trading using opposite Chipotle Mexican and JOHNSON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chipotle Mexican position performs unexpectedly, JOHNSON can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in JOHNSON will offset losses from the drop in JOHNSON's long position.

The idea behind Chipotle Mexican Grill and JOHNSON JOHNSON 495 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.